Accuride, Meritor: Auto Parts Stocks With High Earnings Growth Estimates

Includes: ACW, MTOR
by: Stone Fox Capital

This is the third in a series on stocks with the fastest estimated earnings growth in 2012. The first two articles focused on Take Two Interactive (NASDAQ:TTWO) with estimates expected to grow over 400% and Patriot Coal (PCX) with numbers expected to nearly triple. The third fastest growing company is Manitowoc (NYSE:MTW) with earnings expected to grow over 220%. Since we recently wrote a report on the crane sector which included MTW and the number six fastest grower in Terex (NYSE:TEX), this article will focus on the next two stocks on the SteetAuthority list.

Accuride (NYSE:ACW) and Meritor (NYSE:MTOR) supply parts to the automobile industry. Both companies were forecasted to grow earnings by roughly 220% next year. Likely both companies are relatively unknown by the investment community, which is one of the major benefits of such analysis. Focusing on just the names that hit the media outlets can cause investors to ignore under the radar investment ideas.

ACW engages in the manufacture and supply of commercial vehicle components. ACW announced Q2 results Tuesday night and guided to slightly higher revenue, but slightly lower EBITDA. Good results with 27% growth, but it'll need to see more money flow to the bottom line to make the $1.22 estimates for 2012.

ACW's stock has fallen continually throughout 2011 and is approaching 52 week lows. Concerns that the global economy is slipping back into recession has naturally hurt the stock, but based on the comments in the quarterly report, its market appears strong.

Being recently re-listed back on the NYSE following a capital restructure, ACW lacks significant analyst coverage, so that presents a major risk to the estimates.

MTOR is a leading supplier of drivetrain, mobility, braking and aftermarket solutions for commercial and industrial markets. It actually just preannounced to the downside last Thursday. Though the company still expects 7 to 8% sequential growth, the results were very disappointing compared to estimates. Never a good idea to over promise and under deliver. The company still expects to hit 2012 financial goals, though that appears very questionable based on these results. The full earnings report on August 2nd should help answer more questions on the viability of the original 2012 goal.

One important note is that any downside in 2011 that doesn't materially impact 2012 numbers will actually jack up the growth rate next year even higher. While good down the road, it will likely hold the stock down for a while.

MTOR also trades close to the 52 week lows facing the same recession concerns as ACW. In the end, if these stocks can hit those possibly aggressive targets, the stocks will be much higher next year.

For now though, the stocks will be on the watchlist waiting to see if Q3 results prove that the high growth estimates for 2012 are achievable.

Disclosure: I am long TEX and may re-initiate a position in MTW within the next 72 hours. All data sourced from Yahoo! Finance. The above information should not be construed as investment advice.